RGGI Carbon Allowances Continue Trading at New Highs Ahead of Q3 Auction

Introduction

The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort among nine Northeast and Mid-Atlantic states to reduce carbon dioxide emissions from the power sector. RGGI is the first mandatory, market-based cap-and-trade program in the United States to address climate change. The program requires power plants to purchase allowances for each ton of carbon dioxide they emit.

The RGGI carbon allowance auctions are held quarterly. The most recent auction was held on September 7, 2023, and saw carbon allowances trade at a record high price of $14.17 per ton.

Factors Contributing to High Allowance Prices

Several factors are contributing to the high price of RGGI carbon allowances, including:

• Strong demand for allowances: The demand for RGGI carbon allowances is strong due to the increasing cost of compliance for power plants. Power plants are required to purchase allowances for each ton of carbon dioxide they emit. As the cost of compliance increases, power plants are forced to purchase more allowances, which drives up the price.
• Limited supply of allowances: The supply of RGGI carbon allowances is limited by the cap on emissions. The cap is set by the RGGI states and is gradually decreasing over time. As the cap decreases, the supply of allowances decreases, which also drives up the price.
• Increased demand for electricity: The demand for electricity is increasing due to the growing economy and population growth. As the demand for electricity increases, power plants are forced to generate more electricity, which leads to increased emissions and a higher demand for allowances.

Impact of High Allowance Prices

The high price of RGGI carbon allowances is having a significant impact on the power sector. Power plants are facing increased costs of compliance, which is leading to higher electricity prices for consumers. Some power plants are also being forced to shut down due to the high cost of compliance.

The high price of RGGI carbon allowances is also having a positive impact on the environment. The program is helping to reduce carbon dioxide emissions from the power sector, which is contributing to the fight against climate change.

Conclusion

The RGGI carbon allowance auctions continue to see strong demand for allowances, driven by the increasing cost of compliance for power plants and the limited supply of allowances. The high price of allowances is having a significant impact on the power sector, leading to higher electricity prices for consumers and the shutdown of some power plants. However, the program is also helping to reduce carbon dioxide emissions from the power sector, which is contributing to the fight against climate change.